My Take on What QT Has Done to Stocks, Bonds, Commercial Real Estate (Lots of Bloodletting) & What it’ll Do Going Forward

Fundamentals boiled down to QE or QT since 2009. Now there’s lots of QT, globally, to battle the worst inflation in decades.

By Wolf Richter. This is the transcript of my podcast on Sunday, October 1, THE WOLF STREET REPORT.

A big part of Wall Street and stock market jockeys, and bond-market gurus, queens, and kings, have variously predicted, clamored for, or begged for a big-fat recession. Ever Since about June 2022, they want that big-fat recession because it would “force” the Federal Reserve to pivot, to cut rates, to end Quantitative Tightening, and to restart quantitative easing – the good ol’ money printing.

And this clamoring for a big-fat recession is still going on. The recession-mongers have fanned out and they’re everywhere doing a lot of heavy breathing. And it’s still going on because bets on the stock market went sour.

The Nasdaq is now down by over 18% from its peak in November 2021. The S&P 500 index is down 11% since its peak in January 2022. I mean, how could stocks be even allowed to drop?

Stocks ran out of steam in late 2021 when the Fed started talking about higher rates, ending money-printing, and eventually start the opposite of money-printing, quantitative tightening. By the time money-printing ended and the Fed hiked its policy rates in March 2022, stocks had already dropped a bunch.

They didn’t drop because the economy was bad, far from it. They dropped because money printing and interest rate repression had fueled this huge run-up since 2009. Free money makes all things possible.

In 2018, the Fed gingerly engaged in quantitative tightening, and the S&P 500 dropped nearly 20%. So we know that works.

Stock prices balloon under money-printing and deflate under quantitative tightening. That has by now been established.

This was further confirmed by another bout of that in March through July this year. In March several regional banks collapsed, not because of their loans going bad, which was the problem during the Financial Crisis, but because bond prices had plunged because market yields had soared, which scared the bejesus out of their depositors who then yanked their money out, creating the biggest fastest run-on-the-bank ever, and the banks were history in no time, and other banks were getting lined up against the wall to be shot as well.

So the Fed and the FDIC stepped in to bail out depositors, not investors. Investors got dismembered. And for the Fed it meant throwing about $400 billion in short-term liquidity at the banking system in no time, and that $400 billion in liquidity had the effect that stocks suddenly rocketed higher.

But the Fed continued shedding its securities, and then it drained out the liquidity it had sprayed at the banks, and this turned into the fastest quantitative tightening ever, and by July the show was over. In August, stocks fell, and in September they fell a lot more.

This stock market rose from 2009 to incredible highs in 2021, fueled by money printing, many trillions of dollars over the years, and near-zero policy interest rates.

This was a global phenomenon, with all major central banks doing the same thing, money printing and interest rate repression.

But then the worst inflation kicked off in early 2021, and eventually central banks responded to put a lid on it. And so here we are: massive global QT and much higher rates, promised for much longer. The Bank of Japan is the only exception. And the US economy is still plugging along just fine.

At these astronomical levels of the stock market – still astronomical despite the declines so far – stock prices cannot handle quantitative tightening. Stocks had been driven higher by money printing, and now we have the opposite, global quantitative tightening, and stocks are heading lower.

That’s why Wall Street is clamoring for a big-fat recession: They’re hoping it would “force” the Fed to end QT and restart QE. But the Fed is battling inflation, and it has now also figured out what its asset purchases, its money-printing orgy, have accomplished, and it lost its appetite for it.

And bets on long-term bonds have turned horribly sour. Just look at long-term Treasury bond funds to see the carnage. Those were marketed as a conservative yield investment.

The iShares 20-plus-year Treasury bond ETF, with the ticker of TLT, is down nearly 50% from the peak in August 2020, which marked the peak of the 40-year bond bull market, which had turned into a bond bubble. Since then, bond yields have risen and bond prices have fallen.

Back in mid-August 2020, the government sold 30-year Treasury securities at auction at a yield of 1.4%. Now the 30-year yield is at 4.7%, and the 30-year Treasuries that these investors bought in August 2020 have now lost about half their value in the market. Investors will not have a capital loss if they hold these securities to maturity in August 2050, and they’ll collect 1.4% in interest every year along the way. But if they try to sell today, they’ll lose about 50%.

New investors might like to buy those bonds because now they come with lower prices and a nice 4.7% yield. But investors that bought those bonds three years ago are getting crushed.

At the same time, short-term Treasury bills have gotten very popular with their high yields, now at around 5.5%, and their small downside. But investors in long-term Treasury securities and corporate bonds have gotten crushed.

For bond-fund managers, this is a horror show. That’s why they’re clamoring for a big-fat recession: they want the Fed to cut rates, and end Quantitative Tightening, and they want the Fed to restart money printing so that their bond funds can recover.

But the Fed is fighting the worst inflation in decades, which was in part caused by the Fed’s policies of years of money printing and interest rate repression.

Commercial real estate acts the same way as bonds. When yields rise, prices of fixed-income instruments and commercial real estate fall by definition. That part is inevitable.

Commercial real estate is in trouble. CRE investors are losing their shirts, just like holders of long-term bonds. Landlords face suddenly much higher interest rates that make their variable-rate mortgages economically infeasible, and that make it impossible to refinance a maturing fixed-rate mortgage because the current rent won’t cover the new interest payments. So landlords have walked away from their mortgages and have let the creditors take those properties and the losses. And as we are finding out on a daily basis now, many of these lenders are investors in Commercial Mortgage-Backed Securities and mortgage REITs, rather than banks.

Landlords and lenders in the office sector have the additional issue of the rug getting pulled out from under their office towers by working-from-home and the corporate recognition that they don’t need this much office space. A stunning amount of the office space in central business districts is now vacant and available for lease or sublease. In a bunch of cities, these availability rates are near or above 30%.

Investors in shopping malls have been in trouble since about 2017 due to the ongoing brick-and-mortar meltdown, as I called it, brought on by Americans switching massively to ecommerce for their shopping. Landlords have walked away from numerous malls, letting lenders – again mostly investors in commercial mortgage-backed securities rather than banks – take the losses.

Even the biggest retail landlords, Simon Property Group and Brookfield, have walked away from malls, and Westfields is getting rid of its entire portfolio of malls in the US, either by walking away or by selling them. It got that process started by walking away from two malls in Florida in 2020 and 2021.

But don’t blame the economy. Bonds and stocks are not dropping because the economy is bad. The economy has been muddling through at about the pre-pandemic pace, and in the third quarter, it appears to have picked up some steam. Unemployment rates and unemployment claims are near historic lows. Tech hiring resumed despite all the breathless news about layoffs that sort of fizzled out earlier this year.

Consumers have been surprisingly eager and able to spend money, and they’ve been outspending inflation despite the much higher interest rates. They’ve gotten the biggest pay increases in 40 years, and they’re working in record numbers, and now they’re earning lots of interest on their trillions of dollars in CDs, savings accounts, money market funds, and Treasury bills, and they’re spending money hand over fist.  I’ve been calling them drunken sailors all year.

Businesses are investing and spending. And the government is the biggest drunken sailor of them all, with its gigantic $2-trillion deficit spending during what are the Good Times.

So the economy has been plugging along at a pretty decent pace – and seems to be accelerating.

But prices of stocks, long-term bonds, and commercial real estate have dropped. They have dropped because there has been an epic change in the regime of monetary policies.

For stocks at these still ridiculously high levels, QT is toxic. Stocks need money-printing to rise from here. They got $400 billion this spring from the Fed, and stocks jumped, and then the Fed drained these $400 billion back out, and it drained another $300-billion-plus out since then, and it continues to drain liquidity and shed assets from its balance sheet, and stocks have been swooning since early August.

There is a direct connection between asset prices and money printing. QE inflates asset prices, and a lot of QE for about 13 years off and on inflated stock prices beyond recognition. Even modest QT, as we have seen in 2018, caused stock prices to tank. But back then, inflation was at or below the Fed’s target, and it was easy for the Fed to end QT.

But now there is a lot of inflation, and the whole game has changed, and all prior assumptions are out the window. And now there’s a lot of QT, and so stock prices are deflating, and other asset prices are deflating. There is no magic here. There was no magic in the run-up of stock prices either – it was QE; and now that there’s QT, it’s not magic either. Those are the fundamentals of the stock market now: QE or QT, until stock prices get down to some reasonable level, when other fundamentals start playing a role again. This was the transcript of my original podcast on Sunday, October 1, THE WOLF STREET REPORT.

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  215 comments for “My Take on What QT Has Done to Stocks, Bonds, Commercial Real Estate (Lots of Bloodletting) & What it’ll Do Going Forward

  1. TomS says:

    “Those are the fundamentals of the stock market now: QE or QT, until stock prices get down to some reasonable level, when other fundamentals start playing a role again.”

    So what’s a reasonable level for the DOW for example?

    30K, 25K or lower?

    I’m hopeful the Fed is forced to raise by 50-basis points before the end of the year. I get the need to slow down hikes, but like you said Congress is the biggest drunken sailor of them all.

    I have to wonder if Congress, MSM and even Joe Voter will pay attention when higher for longer really starts to sink in by early 2024? And where will the interest expense be at the end of CY 2023? And what about FY 2024, since higher for longer now is starting to look like it’s possible that rates won’t drop next CY.

    With the Federal deficit spending @ $2T, sky high property taxes supporting big increases in local spending, continued wage growth, & big yields for that top 40% of earners, one really has to wonder if we’re not at least 100-basis points away from the terminal FFR.

    • Bs ini says:

      2800 PE 10-12

      • joedidee says:

        so Brookfield walked away from Park Mall in Tucson owing $154M
        just sold at foreclosure for $87M

        • Frank says:

          malls will be used to house the homeless soon………

        • ChrisFromGA says:

          Mark that dump to market, baby!

          I bet the local government goons aren’t happy about the big hit to their tax base that will leave.

    • jon says:

      “I’m hopeful the Fed is forced to raise by 50-basis points before the end of the year. ”

      FED would never do this before liquidating their real estate and stock holdings.

      • White.bob says:

        Fed was still doing QE thru June 2022 while raising rates

        • Wolf Richter says:

          Fed ended QE in early 2022 (early April was peak balance sheet), then started hiking rates in March, while holding its balance sheet level until QT started in July.

  2. grimp says:

    (good riddance)

    • SoCalBeachDude says:

      There was NEVER any ‘MMT’ at all in the US.

      • TomS says:

        I agree. Congress & the Fed are committed to all the principles of MMT except the tax increases to curb inflation.

        • Cas127 says:

          “all the principles of MMT”

          I don’t know that MMT was ever that principled…it mainly operated as cover to justify allowing degenerate politicians to do what they always do…print/forge money to buy more power for themselves.

          I rarely (if ever) heard MMT’ers talk about the eventual need for tax increases. It was the same sick dynamic that required manhunts and thumb-screws to get an MMT’er to admit that money printing could ruin an economy (“But you said “bankruptcy”…).

          And if MMT admits the eventual necessity of tax increases…how does it differ from old school Keynesianism (another bunch of political pimps who scream for easing every time and vanish for decades when tightening is required).

          Giving political crack-addicts wet dreams is not a sound basis for an economic system.

        • NBay says:

          YEP. And no regressive taxes please!

          Graduated income (or sneaky equivalents) and estate ONLY will do just fine.

          Almost an entire congress may not have the funds to get re-elected……… but what’s a politician…..or a few hundred…….in the big scheme of things?
          Wealthy corrupt businessmen, and lying silver tongued greedy lawyers are a dime a dozen, especially ambulance chasers.

        • longstreet says:


          A couple of things.
          True Keynesians hold that at some point stimulus must be stopped……the Bernanke, Yellen, and partially Powell policies “forgot” that.
          Second, MMT doctrine holds that inflation is to be addressed and quelled by tax increases.
          Though the name MMT was often not attached to policy, the spending splurge and the willful ignorance of believing such actions don’t have detrimental impacts (inflation) was certainly MMT in play. IMO

        • Miller says:

          Couldn’t of said it better. A lot of us have been saying this to point out how incredibly reckless and irresponsible recent Fed monetary policy has been and how there is absolute no theory or policy basis behind it or the “wealth effect” nonsense. And how only “justification” is basically corruption to help the speculator class at expense of huge majority of the US population.

          Like you said, as much flack as the MMT’ers get even they always said inflation is the signal to halt loose money. And Keynesians said you always have to balance fiscal assistance in hard times with more budget balancing (esp wealth taxes) in relatively good times. None of this has been done. If anything, fact that things like crypto and NFT’s are worth so much is evidence of how embarrassing incompetent the authorities have been at managing these policies. Never before have we needed another Volcker to get things straightened out

        • Baxter says:

          The MMT that came out of places like the University of Newcastle (Australia) was designed to finance an employment buffer, primarily through the public sector. The buffer expanded/contracted inversely to private sector employment, and in doing so implicitly recognises inflation. However, it considers the labour market as a tool to fight inflation through creating productive, work ready employed/employable workers; expanding the production possibility frontier if you will. That QE was used to bail out banks and purchase under water assets seems like a departure from MMT’s intent in this context.

        • phillip jeffreys says:

          Take a close look at MMT. Essentially it postulates a technical point: gov’t creates medium of exchange deus ex machina – it’s simply a keyboard action. Similarly, taxes are a digital keyboard operation (or shredding action). Taxes, in this framework, are aggregate demand controls (i.e., an inflation fighting tool in respect to consumption)…with some extra benefits (distribution of wealth control, moral control (sin taxes) for example).

          MMT doesn’t deliver much insight into debt, forward looking investment, much less the political flexibility of the tax system. At a much deeper level, MMT invests huge power in a political class that has proven itself incompetent and hugely untrustworthy.

      • grimp says:

        Fed balance sheet is all u need to look at.

      • eg says:

        I don’t know what you think MMT means, but for Mosler, Mitchell and the rest of the post-Keynesians it’s a description of fiat monetary operations which recognizes the parameters necessary for maximum fiscal policy space.

        So, yeah, whether you realize it or not, MMT is very much happening in the US and has been since the Nixon shock.

        Not that I expect casual observers of US political economy to take the time to investigate the relevant scholarship, but it’s unserious in the extreme to make claims about it without the slightest familiarity with its principles. Mosler’s MMT white paper is probably the most accessible source which you can find with a simple Google search

        • WB says:

          Correct, but this doesn’t make MMT any more sustainable…

          Sorry charlie, real economic activity requires real resources and a tremendous input of consumable calories.

          Good luck.

        • grimp says:

          simple google search (from investopedia)

          “What Is Modern Monetary Theory?
          Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries (such as the U.S., U.K., Japan, and Canada) which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending.

          Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.”

          If you want to defend this, go right ahead.

      • dang says:

        If QE wasn’t MMT then I am wrong. Oh, I know all about the MMT conditions that proclaim that the money, against all of human experience, will be spent wisely.

        My position is that QE was the reality of MMT, Asset price bubbles and drunken congressional sailors, a tax holiday for the wealthy under commander Trump.

        Money is a commodity, designed to be spent.

    • TomS says:

      What about the $2T deficits for the foreseeable future? And, I would bet your $1,000 right now that if we find ourselves in a real recession next year that Congress will pass some form of rent & mortgage relief.

      MMT is alive and well, IMHO.

    • Anthony says:

      Not sure that’s true, since late Friday (UK time) to Sunday morning, the USA debt clock went up $36 billion dollars…..

    • Frank says:

      MMT was always a liberal scam to justify huge federal deficits……

      • Depth Charge says:

        Was Dick “deficits don’t matter” Cheney a lib?

        • NBay says:

          Or all the “conservative’s hero” who started running them more SERIOUSLY than ever before…..The Great Ronnie?

          As my very successful businessman step-father said EVERY time he saw him on TV (and never stayed to listen to what he was saying, either),


        • sufferinsucatash says:

          If Cheney is a lib, then the Republican Party is anti America now. It’s like the republicans just want to get on a raft and leave or blow it all up.

          Like there are lots of other options people! Lol

        • Mt dreamin says:

          I remember Tip O’Neill saying DOA to Ronnies budget proposals.

        • phillip jeffreys says:


          Meaningless distinction. There is the rhetoric…and there is reality: these folks (Repubs, Dems) all enrich themselves. The Repubs feign conservatism while cashing lobbyist checks, the Dems cash checks and advance their preferred socialist causes. Both are in it to maintain their privileges.

          The whole system, to include all its buttressing institutions (e.g., judicial), have run amok.

        • White.bob says:

          It’s sad that people still believe the President controls the budget. No wonder our country is so messed up.

      • Kurtismayfield says:

        None of the non liberals balanced the budget while holding the Presidential office.. ever. And the only time it was really balanced the past 50 years a liberal was in office and a fantastic stock market tax windfall occurred

        But these are just crazy facts.

      • JimL says:

        LOL politicians love voters like you. They like pointing at a group of people and getting you to hate them all while lifting your wallet while you cluelessly spew it.

  3. Sledgehammer says:

    My simplistic (perhaps overly simplistic) view of stock valuation is based on P/E ratio. P/E should be greater than or equal to prevailing interest rates plus a risk premium. Now that interest rates are higher, earnings must increase or stock prices must come down. That’s my simplistic view in a nutshell. YMMV.

    • MM says:


      5.5% is currently the risk-free rate of return. Stocks must yield significantly more than that to be worth it.

    • kiers says:

      @Sledgehammer, i agree. the trick is that the US econ planners have increased interest rates, and fiscal subsidies and handouts to corporations (ie. Bidenomics) side by side so that they balance each other out!
      Quite the trick. The tightening exactly counters the spending (the new wars are a whole other ballgame). Biden is slick

      • JimL says:

        Perhaps you should get a better grasp of what you call “Bidenomics”.

        I would be willing to bet a whole lot of money that you couldn’t accurately describe Joe Biden’s economic views.

        Wanna bet?

    • LifeSupportSystem4aVote says:

      You are using logic and reason to determine the FMV of the stock casinos. That is a quick way to go broke investing (gambling) on them today. Reality and equities is a concept that ended quite a while ago.

    • dang says:

      Stocks, like bonds, should be valued at the net present value of their expected future cash flows. The future is uncertain, no one has a clue what will happen in the next few years, let alone the course of history for the next thirty years.

      While I agree that it has always been a good bet on the good old US of A, at certain times it was also a good idea to seek shelter from the repricing of several asset bubbles. Affordability vs cost.

      Wolf’s commentary speaks to a regime change in monetary policy suggesting that the Fed had a realization that one can’t conjure wealth by printing it. It is an organic quality that mankind has developed since the beginning of time.

      Like housing, I think the stock market is overvalued by 40 -50%, like the 20 and thirty year bond.

      • dang says:

        Wolf discussed the apparent strong economy, dancing among the financial carnage victims as if recession is your neighbor’s problem.

        What happens when the asset bubbles collapse ? What does the Fed do then ?

        Wolf alluded to the stock market rally as a result of the increase of the Fed’s balance sheet during the SVB debacle.

        It’s just another 14% it has too decline to equal fair value

        Unless the Fed decides, again, that American monetary policy should rescue the losers by implementing QE.

        • dang says:

          By losers I am referring to the formerly bankrupt Wall Street banks who now are solvent, with their 8 trillion dollar Fed transfusion onto their bankrupt balance sheets and who graciously covered their interest rate miscalculations by forcing the interest rates to zero.

          Yeah, these are the people in charge. They’re solution is likely to be in favor of the speculators, against joe lunch bucket, like these past 113 years since their inception.

        • HowNow says:

          The Fed’s big lesson was when the fledgling Federal Reserve did nothing at the market crash in ’29. The idea was that the financial system needed cleansing and would heal itself. At that point, the “free marketers” should have read the memo that that will not happen when banks fail, masses of people are unemployed, and the economy continues to spiral down.
          Since WWII, the Fed has done what it could (goosed the system) to avoid another great depression. It errs on the side of stimulus. In 2008, it was full-on panic. They slammed the gas pedal to the floor. They will not sit on their hands if there’s another threat of a serious spiral down.
          So for those waiting for fire-sale pricing…

    • Jcohn says:

      Higher interest rates raise borrowing costs by corporations .Translates to a reduction in earnings
      Higher interest rates raises the cost of stock buybacks .
      Higher interest rates reduce the growth of future revenues via raising the threshold of future projects .
      TINA is no longer applicable. Higher interest rates drain money from stocks . This is already happening and will continue to happen. At a certain interest rate ( above 6% on the 10 year ) , the outflows from stocks into interest bearing instruments will be biblical
      Higher interest rates increase the discount rate used to calculate the present value of future cash flows . This translates to a lower present value for future cash flows .
      Because high P/E stocks are more dependent on their future cash flows , they are also more vulnerable as investors realize the present value of future cash flows has been lowered .
      largely a bet upon their future cash flows

    • Mike G says:

      It’s more useful to look at the US stock market in terms of sectors. Right now we have large-caps, and especially a handful of big techs, priced very high. Small-caps and value stocks are much more keenly priced.

      • HowNow says:

        Historically, though, small caps take the bigger beating in downturns. Opposite on upturns.

    • phillip jeffreys says:

      Yes….expected cost of capital figures into the equation

  4. sufferinsucatash says:

    Sorta seeing signs that retailers are somewhat hurting. Target has been offering some good sales. Amazon too. Their product prices are coming down from nose bleed highs.

    Grocery stores are also having some good sales. And so the grocery prices are coming down if you shop the sales.

    I’m of the opinion the consumer has clamped their wallet shut the past 3-6 months. Cuz I know I sure AF did, and I’m a gargantuan consumer if there ever was one.

    But I do admit that the consensus around here is that the consumer is still bat sh… crazy and going bonkers at Costco. We’ll have to see who was more correct in time. :)

    • Wolf Richter says:

      Almost every retailer will have “sales” and promos — that’s part of being a successful retailer and pushing foot traffic and revenues. To think that having “sales” is a sign of weakness means that you don’t understand retail. Ever heard of “Black Friday” or “Amazon Prime Day?”

      • sufferinsucatash says:

        I understand what you are saying wolf. And yeah sure I could be wrong, but as the character Matt Cathoun in The Wheel of Time books once mentioned “A general has to get a feel for the battlefield to truly know what’s going on.” (Which those books are 14 novels long, however I really do recommend people take the time to read thru them. Matt being such a character!)

        So I just mean I’m in the retail day in and day out shopping for things. And I can “feel” the difference at the moment. I’m also researching for an ecommerce business I’m planning. So I do know a little bit. I was delighted that you see ecommerce as being so strong. Going to take a year on the research and plans. Hoping for a Jan ‘25 start.

        And also had a family member high up in retail in the 80’s thru 2010’s. So I was basically born into it. Still get that high when I see those bright shiny white floors.

    • Matt says:

      If you listen to EC’s of many retailers, several are still dealing with surplus inventory issues. You’ll hear it all the time, “inventory levels almost normalized” and many are looking to get back to normal during this holiday season.

      • sufferinsucatash says:

        They all keep harping about “unholy amounts of theft!”

        I sorta think this “theft fear” they cry all the time is just an out for IF they have poor numbers.

        I think Target’s last investor call was soft and they kept up the theft speak.

        Not to say that theft isn’t bad. But most places just have the normal amounts.

        I sort of think stock holders respond to buzzwords and fear or also positive gas lighting on these calls.

        Do CEOs and the Board have to act in Good Faith for stockholders?

        • dang says:

          My same sense. blaming bad numbers on the less than.

          The external theft is nowhere what they say it is. If they have a theft problem as significant as they say, it’s more likely internal theft or an accounting discrepancy.

        • White.bob says:

          So why are they closing all those stores in SF, Chicago, Portland, etc?

        • Wolf Richter says:


          Retailers have been closing stores in every city and in every town in every state — tens of thousands of stores in total — since 2016, when ecommerce began killing them, one after the other with even the biggest retail chains getting dismembered in bankruptcy court, along with innumerable smaller ones. Countless malls have turned into zombie malls to eventually be redeveloped into housing or whatever. Even the biggest mall landlords — Simon Property and Brookfield — have walked away from malls to let the lenders take the losses. I have been reporting on it right here since 2016 under the category Brick-and-Mortar Meltdown. It’s hard for brick-and-mortar retailers to admit to investors that their business model is kaput, that online retail is taking over, and that all these remaining stores are a total waste of money unless you sell groceries and gasoline.

          An endless number of regional and national department store chains and other retail chains, from Sears Holdings and Toys ‘R’ Us on down to Radio Shack and Bed, Bath & Beyond, filed for bankruptcy and most of them were liquidated and vanished. All regional department store chains have vanished. There are just a few national chains left, including Nordstrom, Kohl’s, and Macy’s, and they have all closed hundreds of stores over the years and continue to close stores.  J.C. Penney was bought out of bankruptcy by mega-landlords Simon Property Group [SPG] and Brookfield, because they didn’t want shuttered anchor stores to doom their malls.

          Zombie malls dot the landscape around the US. Collateral values of the surviving and still functional shopping malls – as we saw with Crossgates Mall – have plunged.

          The biggest landlords, such as Simon Property Group and Brookfield, have walked away from numerous malls, letting their lenders – mostly CMBS holders – take the losses. For example, Simon Property Group walked away from the 1-million-sf Independence Center in a suburb of Kansas City, Missouri in 2019, which generated what was then the largest loss ever by a retail CMBS loan; it walked away from 1.2-million-sf Town Center at Cobb in Georgia in early 2021 and the 1.1-million-sf Montgomery Mall in North Wales, Pennsylvania in mid-2021, etc.

          Westfield, which is owned by the European mall REIT Unibail-Rodamco-Westfield, announced in February 2021, that it would dump all its 27 Westfield malls in the US. The first two malls it walked away from were in Tampa Bay, Florida, letting the CMBS holders take the losses. It then sold and walked from other malls in the US. In June 2023, Westfield and co-owner Brookfield walked away from the Westfield’s mall in San Francisco, also letting CMBS holders take the losses.

          Three publicly traded US mall REITs have filed for bankruptcy since November 2020: the SPG’s spinoff, Washington Prime GroupCBL & Associates Properties, and Pennsylvania Real Estate Investment Trust.

          This bloodbath — we’ve been documenting it under Brick-and-Mortar Meltdown since 2016 — is a result of ecommerce which began to suck the lifeblood out of mall retailers, one parcel at a time, since the late 1990s. Americans have changed how they buy this stuff. It’s a structural change, and it won’t revert to where it was in 2002 at the peak of malls.

          Since 2010, ecommerce sales have exploded by a factor of 7, from $40 billion a quarter to $278 billion in Q2:

          Even as department store sales have collapsed, from $58 billion in Q4 2000 to $33 billion in Q2 2023:

      • JimL says:

        Let me guess, you are one of those people who use propaganda sites for information. Sites that take advantage of your fear and ignorance to scare you with misinformation.

        There is no penalty free shoplifting. If commercial businesses handled theft like they used to in the past, the cops would be more than willing to arrest and prosecute.

        Unfortunately businesses have cut back on resources that could stop shoplifting losses and thrn wonder why police cannot do anything about it.

    • Seba says:

      I also have cut back on my spending and a few people around me have too, but we have to remember that I am 1 of ~40mil people in Canada and if you’re in the US you are a mere 1 of ~300mil people. The charts wolf provides are based on data for the entire USA not just you and your specific circle, if your assertion is that in the past 6MO spending is down then it’s not really a matter of opinion, data shows otherwise.

      • Gen Z says:

        In Canada, the landlord takes your paycheque away from you. You live to pay rent, make Edward Rogers rich with a monthly bill, and Galen Weston’s groceries, and nothing else.

        • eg says:

          Canada — making the world safe for oligopolies since 1867 …

        • dang says:

          That is a bleak description of the monotony of life, available to us all. Without realizing that that is the crown of creation for most of us.

      • Gunther says:

        My observation shows that discretionary spending in southwestern Ontario in Canada is down.
        On a friday evening the Casino is fairly empty, restaurants are mostly empty.
        Boaters stay in the marina and seadoos piling up at dealers, something I have not seen in the last few years.
        In other words, discretionary spending is way down.

        Somehow the obswrvation and the data do not match.
        What is going on here?

        And Wolf looks at the data

        • Wolf Richter says:

          Where I live, San Francisco, people spend money like drunken sailors — and many of those drunken sailors are tourists from all over the place who come to SF to drop money. And by the looks of it, they have lots of money to drop. Confirms the data.

          Canada, or southwestern Ontario, may be in a different spot.

      • dang says:

        Of course, the problem with Canadians, is that they are Canadians and not the kindly neighbors that I was programmed to think they were.

        Yes, America is more concentrated per square mile than Canada, at first glance. However, since most of the people in Canada are clustered together in a limited number of urban centers that approximates the density of population of the most urban concentrated cities in the USA, any excuse for being unsophisticated immediately is suspect.

    • Petunia says:


      The discounters were good during the summer, but now the finds are not as plentiful and a lot more expensive. Generally right now, the quantity of merchandise is less, lower quality, and overpriced.

      I was a weekly shopper during the summer, now planning to mostly stay home until Xmas.

      • sufferinsucatash says:

        I’ve cancelled Christmas spending. I’ll decorate with all my previously paid for decorations . But I’m not spending

        Just made an ironclad budget for 2024, hope more comes in than I’m accounting for. But sticking to it 100%! :)

        • dang says:

          I plan too spend like I haven’t been able to these past 15 years being a fixed incomer.

          Put a roof on the house and have it painted inside and out, the landscaping etc.

          Christmas is a special time for giving special gifts, I suppose. At least it always seemed that way.

  5. MM says:

    Anecdote about a mall near me:

    This mall is located just over the MA/NH border. MA has sales tax (6.25%) while NH has none. The mall sees a significant amount of business from MA residents taking advantage of the sales tax arbitrige. Since these folks would have to pay tax on items shipped to their home, e-commcerce cannot compete on price.

    At the small retailer I do order fulfillment for, I see a significant amount of customers with MA addresses placing orders for pickup at the NH stores, presumably for the tax arbitrige.

    This is arguably a very small % of the market and doesn’t significantly affect the overall brick & mortar meltdown… but interesting to see certain businesses uniquely-positioned to remain resilient.

    • Seba says:

      It seems a parcel service would do well in your area then if you’re looking for ideas . When I was living in metro Vancouver in Canada I was about 20min from the US border, across that border are numerous parcel services that give you a US address to ship to, you get notified by email and provided a locker code so you can stop by 24/7 and get your items. I took advantage of this a lot when USD was lower, bit less more recently but still for some items it makes sense. If you open up a parcel pickup place you can steal a lot of business from that mall 😆

      • MM says:

        Oh yes I’m very farmiliar with freight forwarders. Many of them setup in NH so they don’t have to charge sales tax.

        The thing is, fraudsters frequently use them to rip off retailers. I end up cancelling over half the orders I get with freight forwarding addresses because I can’t confirm that the “buyer” isn’t a scammer.

        • dang says:

          Well, Jeff Bezoz never had to pay sales tax giving Amazon the ability to under price the brick and mortar shop keepers, paying 10% by 5% and put the other 5% in his pocket.

          Like Walmart, paying a fraction of the tax base that the downtown businesses that they undercut paid. We end up with the lowest cost life possible.

        • HowNow says:

          It’s amazing how many billionaires became wealthy strictly on government subsidies, grants and contracts (Bezos, Perot, Musk, Theil, et al) and turned Libertarian to keep future taxes for themselves low.
          The Waltons got their wealth by buying from the cheapest suppliers (China), paying their workers the lowest wages, and, because they minimized employee hours and benefits, advised their poor workers how to get welfare support for medical care and food stamps. “Let the taxpayers eat cake.” The Waltons are right-wingers now after they helped hollow-out the middle class.

    • Jeffrey G Heath says:

      Live free (of taxes) or die.

      • MM says:

        Don’t worry, I pay plenty more in prop taxes to make up for the lack of income & sales tax.

        $6500/yr for 960 sqft on 1/5th acre, specifically.

  6. Michael says:

    Who spoke of QE prior to 2006/2007? No one — and, I mean NO ONE — knew the Fed could do such a thing.

    Then … POOF! QE starts in full swing.

    The gov’t/Fed “always” holds the wild card — ALWAYS! What will they do in 2024/2025? Less than 100 people “know” what’s coming, that is, Central Banker Chiefs and the leaders of the G20.

    It’s a game. They know it; we know it. They will pull a rabbit out of their arse, people will protest, but life will go on with this “wild card”.

    • spencer says:

      The FSRRA of 2006 said the FED could pay interest on reserves.

    • Depth Charge says:

      “Everything is a rich man’s trick.”

      • dang says:

        While that may currently true, it hasn’t always been so.

        The America that the GI’s earned was an earnest and successful implementation of a social democracy society in which the wealth was distributed somewhat equally.

        The staggering wealth creation since that time is it’s own evidence of the justice of that approach. The current failure is a talisman of the greed that makes men forget their roots and forfeit their honor while convincing themselves that that is not what their doing.

    • JimL says:


      He often hinted at QE (though he called it something else, I forget). He also never missed a chance to keep rates as low as possible regardless of the economic data.

      Do you think the housing crisis would have been as severe as it was if mortgage rates were higher?

  7. Finster says:

    One thing that makes assessing the effect of the Fed’s balance sheet (Qs) especially murky right now is what is the relevant baseline? Compared to a year ago, the balance sheet has shrunk. But compared to the beginning of 2020, it’s grown. So is it tight or easy? And the answer isn’t necessarily even the same from the perspective of the bond market, stock market, labor market, etc.

    Not to mention the influence of other variables, for instance fiscal policy. Bond yields aren’t just about the Fed any more. The markets are having to absorb a torrent of supply, and the price-yield level that attracts sufficient demand can’t not be affected.

    • JimL says:

      Why look in the rear view mirror?

      The FED balance sheet is gradually shrinking. It is going to be lower next month, it will be lower in three months, I will bet money it will be lower in a year.

  8. Jason says:

    Long story short: Overall asset prices are correlated with the fed balance sheet. You cant fight against it. If you do, you’ll loose your capital. Most startup investors and penny stock buyers already lost. Big tech and residential RE are holding well for now. But how long?

    • RH says:

      Not long. As to “hi tech” tulips, a.k.a. cryptocrap, I look forward to what will come out in the SBF trial and agency investigations of FTX competitors. For example, I wonder how the lawyers’ civil lawsuits will be filed against a company with no headquarters. LOL

  9. AV8R says:

    Fundamentals as a part of price discovery???


  10. Robin says:

    This article is one of the best I’ve read for a long time in general! It made a lot of sense. Thank you Wolf!

    “And this clamoring for a big-fat recession is still going on. The recession-mongers have fanned out and they’re everywhere doing a lot of heavy breathing. And it’s still going on because bets on the stock market went sour.”

    That’s probably it! :D

    “…and other banks were getting lined up against the wall to be shot as well.”

    I wonder what happened to all these other banks. It’s still to be continuned! :D

    • 91B20 1stCav (AUS) says:

      …and another shout of great thanks to Wolf for the continued transcription of his podcasts to the written page, as much of a PITA as I’m sure it is…

      may we all find a better day.

  11. Flashman says:

    A big part of financial accounting and valuation required an assumed interest rate to value any financial asset. We now have one to work with. The low usable conservative interest rate is now five percent. Dividend and cash flow streams can now be valued. Everything financial asset has a value again and with many assets it will be a lot less than when interest rates were one and one half percent. It is time for the financial world to make sense again.

    • Bobber says:

      In Seattle, people buying 3500 ft houses are paying at least $1M more than what they would pay in flyover country for an equivalent home. With LT rates at 5%, they lose at least $50k per year in income, relative to the person who buys in flyover country.

      If somebody said, I’ll pay you $50k a year to move from West Coast to Iowa or Missouri or Ohio, would you do it? I think most people would, unless they have a high paying tech job.

      • DougP says:

        “for an equivalent home”
        I understand your point but they are not really equivalent.
        With real estate location is everything, or at least a major part of the value.

        They cost less because they are worth less.

        • El Katz says:

          In real estate, location is everything… within a location. We’ve moved around quite a bit in our lives due to my career. Midwest. Northeast. New England. Pacific Northwest. Mid-Atlantic. California. Desert Southwest. There are “locations” in every geographic area.

          We have come to realize that places are just that… places. We lived near the ocean in Seal Beach (15 minute bike ride to the sand). Ask my wife how many times she went to said ocean on purpose. (Rhymes with hero) Rotted out gas grills every 3 years (salt air), blown A/C condensing units every 5 years (salt air), May gray. June gloom. Marine layer. Not seeing the sun until past noon. Even the nail heads holding the roof tiles rusted away leaving nothing more than a pin to secure the tile.

          Skiing? “Just a few hours away.” Too much hassle to load up stuff, drive to Mammoth, cram yourself into an overpriced hotel room and stuff yourself with absurdly priced food. Not to mention the traffic jams and random road closures by the CHP as some fool who knows nothing about driving in snow shuts the road down as a result of their performing uncontrolled automotive acrobatics.

          Unless you can walk out your back door and ski, fuggedaboutit. Beach parking sticks it to you (try parking in Huntington Beach or Newport Beach. Newport Beach parking makes NYC look affordable).

          Just because it’s available, doesn’t mean that it makes any sense – unless you have masochistic tendencies.

          The most staunch proponents of a specific geographic area are those that never lived anywhere else or lived elsewhere with a lifestyle several economic rungs below the one they currently enjoy. They somehow equate the improvement in their quality of life with the place, not the lifestyle. Happiness is wherever you find it.

          Remember: No matter where you go, there you are.

        • MM says:

          Great point El Katz.

          It wasn’t until I worked on a seabourne vessel, that I realized how quickly salt air corrosion destroys electronics.

          I’ll never want to live near a beach for this reason alone.

        • Happy1 says:

          Ha ha El Katz, love it.

          My in-laws live in SF, Richmond District, super food and cool climate, but the ever present fog gets really old.

          And anyone who advertised Seal Beach as “a couple hours from skiing” should also be saying that Vegas is “a couple hours from surfing”.

      • Harvey Mushman says:

        “If somebody said, I’ll pay you $50k a year to move from West Coast to Iowa or Missouri or Ohio, would you do it? I think most people would, unless they have a high paying tech job.”

        You are probably right, most people would do it, but I bet a lot of them end up regretting it.

        That’s what happened to my sister. She moved from So Cal to Cedar Rapids, Iowa. She says Iowa is nice, but in the winter it’s rough. She says, every morning in the winter when she’s scraping the ice off of her windshield, she asks herself “Okay, what do I do to get back to California”. Then there was the time a deer jumped through her windshield as she was driving down the road a 50mph.

        • Bobber says:

          An extra $50k per year would allow somebody to retire a lot earlier and easily afford many luxuries that otherwise wouldn’t be available.

          That’s real money. A person is paid very well for wiping some snow off the windshield a few months of the year

        • Shiloh1 says:

          Buy a garage, carport or car cover.

        • Paul Thronson says:

          I live in Davenport, IA and it’s a great place. Very reasonable cost of living and great friendly people. Yes we do have winter here, but it serves to keep out migration of Californians and New Englanders which is a good thing and means that we won’t have the same problems that Florida and Texas do.

        • ned says:

          pro-trick: pour warm water on windshield-no scraping needed😉

        • El Katz says:

          Pro tip: Warm water on the windshield is a good idea unless you have a chip or crack…. then the crack spreads and it’s new windshield time.

        • Depth Charge says:

          If she was too poor to afford a garage in Iowa, she ain’t “getting back to CA.”

        • Mike G says:

          Now try finding a job with the same pay and prospects as you had on the West Coast. When my parents relocated from CA to TX his new employer flat told him we’re offering you 25% less pay because the cost of living is lower here.
          On the other hand, my coworker moved to the midwest and works remotely. Same pay and he works from home, doesn’t have to commute in the horrible weather.

        • LKinAZ says:

          I’ve never been to Davenport but it looks very nice, and probably not a bad alternative to the summer months in Southern Arizona.

      • OutWest says:

        Bobber – why aren’t people, as you suggest, moving out of Seattle (the West Coast) to ‘fly over county’? Are they stupid because they don’t move to Iowa, Missouri, or Ohio?

        That’s an odd proposition don’t you agree?

        • Bobber says:

          Its a choice people are making whether they realize it or not.

          Saving $50k per year is a realistic proposition, not an odd one. I’ll venture to say many people are leaving Seattle as we speak to capture that $50k, but wealthier are moving in who consider $50k chump change.

        • HowNow says:

          Outwest, you’re forgetting the “herding instinct”. People aren’t that different than sardines, wildebeests, or parakeets. If the school of fish dart to the left, they go left. It’s supposedly related to the survival of a species based on the probability of being eaten or not. For humans, it’s tribal.
          I think that when you get older, the instinct goes in the other direction: xenophobia, claustrophobia, agoraphobia, etc. When your phobia turns to mania, you move your residence to Congress.

        • ApartmentInvestor says:

          It does not cost $50K “more” to live in Seattle or the Bay Area for most people since they have the option to rent a home (my cousin is renting the $3mm “according to Zillow” San Mateo Home he grew up in for $72K/year and I just looked and saw many homes in Seattle that you can rent for “less” than $50K/year).

        • MM says:

          72K/yr is an insane amount to pay for rent. That’s $6000/mo!

          You could absolutely save $50k/yr by living somewhere that doesn’t charge an arm and a leg for rent. As recently as 2021, I rented a penthouse just outside of Boston, which cost less than half that in monthly rent (I also had a roommate).

      • OscarTheGrouch says:

        Know Price. Value nothing.
        – O. Wilde

        • 91B20 1stCav (AUS) says:

          …ah, the resolute cynic’s motto (first imparted to me by a passed (and highly missed) friend)…

          may we all find a better day.

      • Happy1 says:

        I would not make that trade, I live in CO and ski and hike, life is way too short to live where you can’t do the things you love. But double that money and it gets interesting because you could retire early.

      • Einhal says:

        I wouldn’t need to be paid anything to move out of bright blue states, although the Midwest wouldn’t be my top choice because of the weather. I’d rather live in a place like Arkansas or Oklahoma.

        • Escierto says:

          Have you ever lived in Oklahoma? I spent two years there.

        • 91B20 1stCav (AUS) says:

          Wolf’s expat Okie’s observations always make for interesting reading…

          may we all find a better day.

        • Gattopardo says:

          Einhal, I’d like to introduce you to this thing called the mosquito…..

      • Escierto says:

        No, I would not for 50K a year. Maybe for 500K a year but I would have to think about it because I don’t really need the money.

      • SoCalBeachDude says:

        Real estate is about LOCATION, LOCATION, and LOCATION.

        • Depth Charge says:

          If that were true, you wouldn’t have median prices of $600k in sh!tholes like NV.

      • dang says:

        I agree. That is what the young people are asking themselves; why is the price of housing so high in a shit hole like Seattle and so low in flyover country. Have you ever been to Seattle ?

        Jobs and excitement become mundane after three years all the while the charm of flyover country becomes more valuable.

        Obviously, I don’t get it.

        • 91B20 1stCav (AUS) says:

          dang – but in reading your eloquent, radiant, ‘crown of creation’ comment above, I think perhaps you do (or I missed the /s…).

          may we all find a better day.

        • HowNow says:

          When the anxiety-ridden, hyperactivity of high density living is replaced by boredom, you come to like boredom. It’s an acquired taste.

      • JimL says:

        Except it doesn’t work like that.

        You are only looking at house prices. Look at jobs and wages also. I lived in Iowa for a while. You can get lots of cheap housing, in fact there are lots of small dying towns where you can pick up a house for next to nothing.

        The problem then is that you now have to live in a dying town that has one bar, a SuperWalmart 15 miles away, and maybe a few other dying businesses.

  12. Cobalt Programmer says:

    1. Most of the common people do not know about the “rates”. Prices go up for some mysterious reason usually because of the man in the white house.
    2. Even people in stock market who are the finance gurus, do not care about the rates, they keep doing the same BFTD.
    3. Average size of women in US is XL to XXL. Let that sink in.
    4. The older name brands are no longer accessible to an average man. Store brand items are cheaper though.
    6. Like the other “Micheal” said, rulers can pull yet another financial tool. QE -infinity, CBDC, Cashless society, MMT to the moon, new global currency and FEDcoin can also be introduced.
    7. After a few years, we will be like “Just forget about it”…

    • Escierto says:

      What point were you making with item #3? I am sure that you are right – I just wonder how it is relevant.

    • dang says:

      After sinking in, the size of the women in the US has nothing to do with me. I’ve been married to the same woman for 45 years. She seems to be as lovely as she always has been.

      • HowNow says:

        My wife and I are inversely correlated: as she has gained some weight, I have lost some intelligence.

        • 91B20 1stCav (AUS) says:

          How – 🤣you are killin’ me today, I say killin’! – best.

          may we all find a better day.

  13. Matt says:

    I don’t know….so many people in these comments keep talking about stocks being expensive still. I disagree, there’s so many opportunities in stocks right now and even since Fed started raising interest rates. People keep referring to the Mag 7; they already crashed; and they were great buys when they did. Meta, NFLX, Googl, AMZN; tremendous opportunities. If they come down again, great. But sans some exogenous event, maybe they won’t because many of them mint so much cash themselves and are sitting in so much cash and won’t have to refinance any debt like some crappy, unprofitable small cap.

    • Einhal says:

      LOL. The “crash” you refer to was a 20-30% drop, and P/Es are back at 30 or so, for stable businesses with much more limited growth potential.

      I said it in another article, and I’ll say it again. The Bigtech companies only can “mint” money when the rest of the economy is functioning well around them. Who is going to pay for Facebook or Google’s advertising if there are bankruptcies everywhere? Who is going to pay for Microsoft’s cloud and 365 services when tons of small businesses that are unprofitable dry up?

      The point is that the big companies are not in a vacuum from the rest of society and the economy, regardless of what their apologists like to say about their “moat.”

      • Matt says:

        Meh. Was a crash to me looking at the share prices of googl, Amazon, NFLX, and meta that resulted in a decline of way more than 20-30%. Risk vs. Reward looked great at the time and valuations reasonable. Like I said, they crashed already. And if you could see past all the FUD that bears persistently talk about them you pull the trigger. Will they do it again? Who knows. If they do I’d buy them again.

    • SoCalBeachDude says:

      Stocks are absurdly overpriced based on PE multipliers with the ‘Big 8’ averaging a PE of around 38 which represents a valuation 38 years out when the average PE should be in the 6 to 15 range, and nearly 100% of all stocks are insanely overvalued based on PE earnings and many cases have PE losses. Learn about fundamentals.

      • HowNow says:

        I mostly agree, but at some level, the “fundamentals” aren’t really fundamental. Humans place value on things that have no value. Art work, antique tools that are obsolete, used postage stamps… Here’s one for you: during the gold rush of the late 1800s, women were in such short supply and great demand that miners were known to bid up the price of shot glass of their… you can fill in the blank.

      • Matt says:

        Eh. P/e can be an antiquated way to value a company depending on the situation. I agree that the big 8 are now currently over valued. But if you’re looking for companies with p/e or 6-15 I’d still argue that there are plenty of opportunities if you look. I see it with my own eyes. Start with your own circle of competence. Maybe you know of a company or two going through a short term post covid hangover that’s a bargain right now but will be fine in the long run.

        • JimL says:

          I am the biggest proponent of investing in stocks, however I can tell that your method of investing revoles around “Greater Fool Theory”. There will always be a greater fool to pay more for your stock when you want to sell (except when there isn’t).

          I am guessing you are young and have never invested in a time when the cost of money was tight.

          Greater Fool Theory doesn’t work then as you will eventually learn.

    • The Real Tony says:

      What about the spread between dividend yields and treasury rates? The stock market needs to drop 80 percent to readjust to those treasury rates. You know what they say no ponzi lasts forever.

  14. TK says:

    Hi Wolfe – best analysis! thanks

  15. Portlander says:

    “… the economy has been plugging along at a pretty decent pace ….”

    GDP has been bouncing around 2%/yr real growth for a decade so that’s an accurate statement. But I contend that this “average growth” rate is misleading. Looking at the GDP-income side, we can examine this 2% growth by income class. By far most of that 2% growth has benefited the top quintile (a lot of it rentier income). The real income growth of the next four quintiles, collectively, has been closer to zero. Take away the 2nd highest income quintile, and real income growth for the remainder has been negative. The economy has been basically in recession (or close to it) for the bottom three quintiles for a decade.

    This is the problem with focusing on averages. When distributions are highly skewed, the average is way above median. When the median (e.g. real GDP) is close to zero, half the population is in “recession” or near one. Most young people with kids and debt (e.g. student loans) are in that bottom two quintiles. Try to get by with low, stagnant income while raising a family with growing needs.

    To sum up: the economy is “plugging along at a decent pace” if you are above the median, more particularly if you are in the top 1-2 quintiles. This seems structural over the last decade of near zero growth.

    The conventional wisdom seems to believe that there are few political consequences to an economy that is feeble but not officially in recession. I wonder if this will be true in 2024 if the bottom three quintiles significantly outnumber the top 2 at the polls.

    • Wolf Richter says:

      Time to update your figures. Over the past two years, the biggest income gains were in the lower income categories where there were the biggest labor shortages because people didn’t want to do those crappy jobs for crappy pay anymore.

      Yes, income inequality and wealth inequality have been real problems in this country forever. But I address these income inequality issues in different articles. One topic per article. I get tired of these copy-and-paste comments that say every time we discuss economic growth or labor market growth or whatever, “yeah but income inequality…” It’s simpleton’s response in denial of economic growth.

      And your statement that the economy is “feeble” is nonsense. The US economy is HUGE and immensely complex and diversified. When the HUGE US economy grows by 2%-3% in real terms, it’s in dollar terms a HUGE amount of growth.

      • Depth Charge says:

        One man’s “economic growth” is another man’s money-printing. This “growth” was fake, caused by currency debasement and artificial demand.

        • Wolf Richter says:

          The growth was real, but what caused the growth (money printing) was fake?

          Actually, money printing mostly causes asset prices to inflate. It does very little for the economy, which is why it’s such a scandal.

      • Yort says:

        The last employment report seemed skewed, as much of the wage increases came from lower paying service jobs, and thus the average monthly increase was lower and less relative than the median, which is why the fed uses median instead in their upcoming Fed employment report.

        When talking about wealth inequality, it becomes relative to look at both average and median wealth disparities, as the differences are not trivial.

        Test the hypothesis by running wealth numbers through both median and average wealth calculators online. Note the more accurate calculators will require age inputs for better relativity rankings, which are not reported in media reports

        I’ve been surprised how fast wealth has increased recently, and thus inequality. There seems to be a stronger correlation to QE, versus interest rates…yet so many media pundits cry out for lower rates to help poorer people, which also disappropriately helps the wealthy also.

        The Feds have understood the negative correlations of QE for a very long time, and after the popular movements of 2020, they could not ignore it as acceptable due to political ramifications on fed independence.

        That is one of many reasons I don’t think the fed will go back to trillions of new annual QE anytime soon. Instead they will lower fed funds rate and jawbone markets, like always.

        P.S. I look forward to your next wealth inequality article.

    • dang says:

      The GDP increasing has more to do with the trade deficit and the budget deficit.

      The US trade deficit is running between 6 and 8 pct which requires the budget deficit to equal or exceed the trade deficit for the GDP measurement to be positive.

      The positive growth in the GDP is not what you think it is. It is a measure of the imbalance between imports and exports, the offshoring phenomena.

  16. Julian says:

    I’m wondering why QT doesn’t work as quickly with RE pricing as it does with stocks, bonds and office buildings..

    • American Dream says:

      QT can’t force people to sell there homes.

      Job losses usually does the trick tho.

      Wolf keeps close track of how much housing has come down. In certain markets it’s significant but not widespread enough… Yet👹

      • Depth Charge says:

        Housing prices were coming down, then they reversed and shot back up. Some markets have erased all of those declines. It’s bizarre. The volume of houses sold is very low, so I think the mix is partly to blame.

        • Happy1 says:

          Denver prices still steadily grinding down week by week.

        • JimL says:

          Housing prices are very much localized, but overall, housing has slowly been dropping.

          The reason it is slow is because it is a decision most people don’t HAVE to make very often in their lives. The decision to buy or sell a house often involves other factors than price. In fact, price is often at least the 3rd or 4th factor people use when buying a house.

          Many people make the decision to buy or sell a house only once or twice in their lives.

    • LIFO says:

      The Fed might be imposing QT, but the rest of the government is working overtime to help “poor, struggling homeowners” and to induce new suckers to buy overpriced houses.

      • HowNow says:

        For investing, it’s better to be FIFO than LIFO and much, much better than LILO.

  17. kramartini says:

    Stocks face either a crash or a long period of low returns. Choose your poison.

  18. American Dream says:

    As far as stocks go… Have to be fair and acknowledge that stocks were going through the roof ever since last year’s final tax loss selling day. January and February were up pretty big especially tech.

    So this was pre March banking collapse money raining.

    While I am expecting and looking forward to a good market crash I’m just saying the effects of QT may not have an immediate impact on shorter timeframe stock movements..

    The bond market tho…ouch

    • phillip jeffreys says:

      P/E can be calculated using current share price divided by trailing twelve month EPS or expected future EPS.

      It’s the EPS used that matters. Expected EPS obviously connects to macro and industry projections, accounting techniques, etc. In the event, P/E is not disconnected from future GDP/industry sector expectations. How does one arrive at high P/Es for a given current share price? Lower expected EPS; or, “exuberant” current market share pricing; or, both. Ether way, one needs to speculate at this point: are markets efficient at price discovery; are the various data guessers (economists, financial barons) competent at predicting future EPS (i.e., GDP/industry sector margins & volumes)?

  19. longstreet says:

    What impact on PE ratios does “too much money” out there have?

    We still have TRILLIONS extra floating around out there…money must find a home. And the attitude that the “Fed will always save you” and all you have to do is wait it out ….is in full play.

    • HowNow says:

      Longstreet, you got me wondering. So I found this on “YCharts”:
      In the last 5 years, the money supply (M1) jumped from $4T (2/20) to a peak of $20.6T (3/22) and now at $18.3T. That money may be sitting in Treasuries, bank deposits, toe-nail clippings, wherever.
      This may keep the market from a full-on crash. Seems to me that there’s a helluva lot of cash ready to buy on dips.
      But one must never underestimate the power of a black swan.

  20. Natron says:

    Oh for the days when productivity gains pushed the stock market and where shared w the stakeholders too, not just the shareholders.

    Too bad this giant boom in manufacturing with robots will concentrate those productivity gains into owner’s pockets even further. I guess we’ll see some deflation in various products but will we be able to afford to buy them anyway? Will see.

  21. The Liberty Advocate says:

    Interesting article Wolf. Thanks.

  22. Rico says:

    I don’t see a crash or panic coming soon. Sooner or later rates will effect profits and zombies will go bankrupt. Could just be a super long bear market that grinds down or sideways.
    There will be rebalancing more to fixed, but hopefully everyone isn’t going for the door at the same time.

    • The Real Tony says:

      Hopefully more voodoo accounting won’t be invented as earnings have fallen since the 1981 recession in real terms.

  23. Maine Streeter says:

    Love the transcript, Wolf.

    Can you clarify: Is this primarily a Wall Street vs. Main Street issue?

    If I’m reading correctly, it sounds like those clamoring for a recession are doing so so that the FED will reinstate QE which has the effect of artificially inflating asset prices.

    I’m invested, but would prefer a healthy market vs a healthy stock market. The stock price should reflect the business fundamentals, right?

    Dean Baker recently referenced research about the inflationary effect of the Wealth Effect (short take: people spend more when they feel like they are worth more). Wouldn’t deflating asset bubbles then also reduce inflation?

    • Wolf Richter says:

      Lots of people with a lot of money in stocks clamor for a big fat recession that would “force” the Fed to pivot.

      People who hold few or no stocks but work for a living, and earn most of their money that way, hate recessions because it might throw them out of a job.

      A correction or even a 20% selloff has no impact on overall spending. When the S&P 500 spiraled down 50% and the Nasdaq 78%, as it did in 2000-2002, people started cutting back, and we saw that back then, but it caused only a minuscule mild and brief recession.

      • HowNow says:

        Interesting point! So, would you say that the “wealth effect” is bogus (as far as a significant cause for increased spending)? Or do you think it’s mainly due to monetary growth?

        • Wolf Richter says:

          You need a HUGE amount asset price inflation (= huge artificial wealth inequality) to add small amounts of economic growth. It’s the most expensive economic growth ever purchased.

        • JimL says:

          The past 4 decades have been the biggest experiment of supply side economics. First abnormally low rates, then an actual inflation of asset prices (QE). All of which barely moved the economic needle (relatively speaking). It took far too much supply side goosing for even a sllittle bit of economic increase.

          Then the pandemic came along and demonstrated that even a little bit of demand side goosing (giving poor and average people money) had an exponentially greater effect on the economy than supply side did.

          Unfortunately it is going to take a while to unwind all of the effects of the 40+ year experiment in supply side economics.

          Most economists knew 40+ years ago that supply side economics wouldn’t work (“pushing on a string “), but it was impossible to counter the propaganda.

      • John Shade says:

        I have become a daily reader over the past eight months and appreciate your data-driven, dogma free analysis.

        What is the mechanism by which Quantitative Easing inflates stock prices? The Fed buys U.S. treasuries, and Treasury has the funds. It does not invest them in the S&P 500. When the fed buys government agency mortgages, Freddie and Fannie don’t invest in the S&P. Is the mechanism simply the reduction in the discount rate by which future corporate earnings are discounted to present value?

        • Wolf Richter says:

          The Fed buys securities from the primary dealers (list here), who then have that cash that they need to do something with, and with that cash from the Fed they buy securities from others who then have the cash they need to do something with, who then buy securities from others, who then have the cash they need to do something with, who then buy…

  24. crazytown says:

    High yield has been flat since Q4 2022 despite investment grade rates increasing significantly. Looks like high yield has finally broken out above 9%, that will be something to keep an eye on.

  25. SoCalBeachDude says:

    WSJ: Wall St Not Sure It Can Handle All of Washington’s Bonds…

  26. The Real Tony says:

    The biggest disconnect between dividend yields and certificate of deposit yields in all of history possibly of all times for the next one million years or more. Either stocks have to fall off a cliff or interest rates have to tank.

    • Escierto says:

      One million years ago, our ancestors, Homo Erectus, were busy trying not to get eaten. I am pretty sure they had no stock market then nor for quite a while thereafter. So I would not prognosticate about the next million years.

  27. Thomas Curtis says:

    Inflation is the bugaboo. The FED’s QT and interest rate hikes are heading in the right direction to eventually tame it.

    Until then I will continue to pick up tax advantaged Qualified dividends from foreign listed stocks that are not historically overvalued like most U.S. listed stocks. Further, as the dollar eventually normalizes foreign shares will benefit.

    I have no idea when we will get inflation under control. There is also a worldwide debt problem growing which could yield all sorts of problems.

    So, I will stay in strong companies that pay me enough to keep ahead of inflation, provide long-term asset appreciation, and will ride up with sudden large rallies which is when most equity appreciation occurs.

    • MM says:

      You always post these very bullish comments – do you at least allocate *some* of your portfolio to stable things like T-bills?

      Even the most solid companies can have overpriced stocks which are subject to repricing. Additionally, with T-bills yielding 5.5%, your risk premium should be much higher than this.

      I agree inflation and rates will be higher for longer – my short positions against TLT and homebuilders have been my money-maker here.

      • Thomas Curtis says:

        To MM,

        I think my investments will out perform t-bills medium to long term. Further, I believe current market and economic problems are not solvable in the short to medium term. The drunken sailors have many lessons to learn.

  28. Sensei says:

    Wolf, this is a really well done article. It covers a lot of territory, big picture (QE and QT) and the relationship to stocks, bonds and CRE. I read it 3 times to make sure I did not miss anything, with each read getting better.

  29. Nick Kelly says:

    If I get the thesis correctly, the drastic run up in interest rates has affected financial assets almost in real time, but not the economy, which is doing fine. I think this is because the former, especially stocks, react instantly because they are traded by the minute or even by fractions of a second by computer programs. This is not the real economy. Bellwether Apple is a huge junk of the stock market but in terms of market cap, employs very few in the US, about 40K directly, but its PR tries to claim all retail clerks etc.

    Where the rates ARE beginning to bite is in commercial real estate, but even this takes time to result in job cuts. This is because only in that segment are there lots of variable rate mortgages. But to the extent lots come up for renewal in a year or two, the crisis happens then not now.

    Now switch to Canada where the run up in rates affects outstanding residential mortgages, where a big swath are variable. To keep the clients alive, the banks have extended the amort period. One guy has gone from 25 years to 47 years.

    I get 2 real estate news letters in inbox. both usually full of happy talk.
    Last week’s was different. Realtor points out that at some point soon, we are going to have some forced selling, meaning the seller MUST accept the price. This lowers all appraisals.

    I don’t know about the US but Canada is in only slightly better shape than Oz, which at least is in better shape than China. How can there not be a recession in all three when RE is such a big part of the economy?

    But unlike the stock market, it takes time.

    • JimL says:

      Your read is only partially correct because it is not only the run up it rates. It is also the QE/QT. QE drove up stock (and other asset prices). QE will also drive them down.

  30. Dean says:

    Rising wages = increasing retirement contributions. I wonder how this is impacting markets.

  31. Depth Charge says:

    Why do people, seemingly even Wolf, feel entitled to the gains from QE? QT should be just as fast as QE. There never should have been QE in the first place, and even Wolf has admitted it’s a poor idea and didn’t work, only serving to create the biggest wealth disparity in decades. The FED balance sheet should be drained as fast as it was expanded, and QE should never, EVER take place again.

    • HowNow says:

      DC, you’re forgetting what brought about QE to begin with. Dropping rates to effectively zero in 2009 did not jump-start the economy. Instead of going to negative-rates, they chose QE. In the first round, it didn’t seem to have any effect. Then came QE2, then 3. Even then, the Fed wasn’t willing to raise rates fearing the economy would fall flat, wiping-out any gains from all 3 QEs. But they kept that up for too long. Then COVID. Now… inflation showed up and the Fed is still scared they’ll overshoot on reigning it in.

      • 91B20 1stCav (AUS) says:

        “…the reign of the rain in Spain is mainly reined in on the plain…”. (…gawd, how I love the English language! Run it through the spellcheck and associated AI machines and what could go wrong?).

        may we all find a better day.

        • HowNow says:

          The reign in Sprain falls mainly on the plane.
          Sorry about the misspelling. It pains me to explain.

      • cb says:

        They should not have dropped rates to near zero, nor should they have implemented QE. They should not have bailed out, picking winners and losers, rewarding the speculative class and inhibiting the practice and development of prudence.

    • MM says:

      I agree QE never should have been done, but we can’t go back in time and un-do it.

      I believe Wolf has stated that doing QT too fast would cause a meltdown in financial markets, which would be bad for everyone.

      I personally would like to see housing come down more and faster. I think the Fed could sell just a wee bit of its MBS holdings to nudge the housing mkt along.

      • JimL says:

        Except selling MBS holdings faster would do nothing to the housing market.

        The housing market is dependent upon people looking to sell more often. This will only happen under two circumstances, one, a bad recession which literally sucks for everyone, or two, time. People die or find reasons to move.

        The FED losing losing lots of money selling MBSs won’t cause anyone to move.

    • JimL says:

      QT should only be as fast as QE if one desires economic Armageddon (like you have shown you desire). It has been explained to you many times, that you have ignored these explanations and continued to ask the same questions doesn’t render the explanations invalid. It is just a reflection of you ability to understand.

  32. Anon2 says:

    1. The US wealth to GDP ratio is about 30% above historical averages –
    2. US home price to rent ratio is similar – 30% above historical average.
    3. US home price to median income at 4.1 is also about 30% above the previous averages of around 3.

    Lower interest rates push up asset prices (future income is discounted at lower rates). Now that rates are normalizing, expect some years of stagnation in asset prices till the ratios come more in line with previous averages.

  33. Out on the bumpy road says:

    I am a usps rural carrier, my salary was cut 10k this past spring and in June I was given a 30% workload increase after Amazon started sending their semi trucks to our small off with pallets of packages.

    So it seems that Amazon has found a way to keep costs down both in their warehouses and shipping.

    So I guess I’m saying be bullish on Amazon.

    There will never be another like it.

    • JimL says:

      I am sorry for your wage cut. Terrible. Absolutely.

      Amazon found a way to tap into that magical economy (similar to Uber and GrubHub, etc, ), where people are willing to overlook the long term costs of asset depreciation of their vehicles in order to make some money in the short term. They have benefited greatly from people willing to “invest” in trucks to become contractors delivering Amazon packages.

  34. ApartmentInvestor says:

    Anon 2 wrote:

    > US home price to median income at 4.1 is also about 30%
    > above the previous averages of around 3.

    I just looked and Redfin said the August 2023 median home price in SF was $1.4mm. The 2020 Census median household income was $119K and adding 5% for the last few years just gets to $137K with the home prices more than 10x income. In the mid 80’s I did a bunch of research on Bay Area Home prices by “census track” and I was amazed how many were right around 3x (Hunters Point homes were worth a lot less than Pacific Heights homes but the median annual income in both census tracks was right around 1/3 of the median home prices in both neighborhoods).

    • anon2 says:

      Yes, the price to median income ratio is very high in the coastal cities. Highest perhaps in SFO and LA

  35. Earl says:

    But corporate earnings remain strong and the P/E of the current S&P500 is not actually that crazy relative to 25 yr averages. So was the Fed’s QE driving inflated corporate profits, moreso than directly driving inflated stock values? And aren’t strong corporate profits simply another name for a strong economy?
    Don’t get me wrong, I’m disgusted by the past 13yrs and widening social wealth gap, but being a “perma-bear” for too long has also contributed to my savings “not keeping up with the Joneses”.

  36. Fed up says:

    Sorry, I know links aren’t encouraged, but I think people need to see this. Lance Lambert is saying the letter is real. If my post is deleted, so be it. I just thought I’d give it a shot.

  37. Zero Sum Game says:

    Has there been any discussion lately about what happens when the reverse repo cash stockpile drains to empty? It was over $2 trillion earlier this year, now down to $1.2 trillion and falling fast. Will a depletion to zero spike yields in a distressing fashion?

  38. Thomas Curtis says:

    I guess I joined the recessionistas this morning. It’s not an economic viewpoint so much as a social viewpoint. I think the drunken sailors need a dose of strife and are determined to get it.

    I am fairly confident my hunker down portfolio will do ok to well as the sailors learn.

  39. Laura says:

    So they partied hardy gambled excessively and now the income divide grows even more severe. Economic experts, I believe the label of expert will be pejorative in the future

    • JimL says:

      That is incorrect. The economic divide grew for a while (though slowed down by Obamacare). The last couple of years it has actually shrunk. Assets owned by the wealthy have been decreasing I price and the wages earned by the poor have been driving inflation.

  40. Ray Blaak says:

    > Back in mid-August 2020, the government sold 30-year Treasury
    > securities at auction at a yield of 1.4%. Now the 30-year yield is at 4.7%,
    > and the 30-year Treasuries that these investors bought in August 2020
    > have now lost about half their value in the market. Investors will not have
    > a capital loss if they hold these securities to maturity in August 2050, and
    > they’ll collect 1.4% in interest every year along the way. But if they try to
    > sell today, they’ll lose about 50%.
    > New investors might like to buy those bonds because now they come
    > with lower prices and a nice 4.7% yield. But investors that bought those
    > bonds three years ago are getting crushed.

    Thank you for the most succinct and clear explanation of bond yields vs price I have ever read, how they relate, which it matters (or not) to a particular investor.

  41. tannin says:

    looks real, Fed up…….Thanks.

  42. Jiml says:

    Wolf, if you get nothing else out of this I want you to know 100% that QE/QT was driving asset prices the past few years. I also think artificially low rates had a bit to do with it as well.

    Stocks in general are way, way, way overvalued. Not even arguable.

    That said, a person does not buy “stocks”. They either buy an index fund or individual stocks. Not all individual stocks are overvalued.

    There is a difference between buying NVidia at crazy valuations and buying Berkshire at modest prices. Especially since the latter benefits from higher rates and a higher cost of money.

    You of all people know thay the S&P is pretty much dominated by the price of a very few stocks.

    Again, don’t get me wrong, most stocks are going to take a beating, especially those that are reliant upon debt. Refinancing for them is going to suck.

    Those with solid gold balance sheets though are going to love the bloodbath in the long-term.

    Long term is key though.

  43. Kevin W says:

    “Investors will not have a capital loss if they hold these securities to maturity in August 2050, and they’ll collect 1.4% in interest every year along the way.”

    AITA if I laughed out loud at this line?

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